EA earnings jump as game sales beat targets

Digital revenues surge more than 70%; Star Wars MMO on track

By

DanGallagher

SAN FRANCISCO (MarketWatch) — Electronic Arts Inc. reported a sharp rise in earnings for its fourth fiscal quarter on Wednesday afternoon on strong sales of core video game titles as well as its growing digital business.

The video game publisher’s shares rose about 1.5% in after-hours trading Wednesday following the report, following an earlier decline.

EA
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issued highly conservative guidance for the current quarter and fiscal year — a period that will include the highly anticipated release of a “Star Wars” online multi-player game the company has been developing. EA also said it faces some risk for its EA Sports business for the year with potential lockouts at the NFL and NBA, as well as a tough comparison for its FIFA soccer franchise.

“Year over year, these differences represent roughly a $250 million revenue challenge,” EA chief executive John Riccitiello said on a conference call on Wednesday.

For the period ended March 31, EA reported net income of $151 million, or 45 cents a share, compared to net income of $30 million, or 9 cents a share, for the same period last year. On a non-GAAP basis, the company said earnings would have been $83 million, or 25 cents a share, for the period.

Non-GAAP results exclude the effect of deferred revenue from the sale of certain video game titles, as well as expenses from stock-based compensation.

Analysts had been expecting earnings of 22 cents a share on overall revenue of $924 million, according to consensus forecasts from Thomson Reuters.

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EA said the top-selling games for the quarter were “Crysis 2,” “Dragon Age 2” and “Dead Space 2”, each of which sold more than 2 million units during the period.

In an interview, CFO Eric Brown said the company’s digital business was driven by strong double-digit gains in each area. The digital side includes downloadable expansion content for console games as well as game for PCs, social networks and mobile platforms.

The biggest drivers of digital growth for the period was downloadable content, or DLC, along with micro-transactions associated with EA’s free-to-play properties, Brown said.

EA’s strategy is to take its well-know console games and push them across new platforms, such as Facebook, mobile devices like the iPhone as well as subscription-based multi-player models. The company’s popular FIFA soccer franchise accounted for $100 million in digital revenue alone for the full fiscal year, Brown said.

“That’s something EA is doing that we don’t see happening at any other company,” he said.

For the current quarter, EA said it expects non-GAAP revenue to come in the range of $460 million to $500 million, below the $518 million expected by analysts. Net loss for the quarter is expected to come in between 44-49 cents a share; analysts were expecting a loss of 36 cents a share on a non-GAAP basis.

The company said it expects revenue for the full fiscal year to come in between $3.75 billion and $3.95 billion, on the low side of Wall Street’s consensus estimate of $3.94 billion. Digital revenue is expected to exceed the $1 billion mark for the year, on a non-GAAP basis.

Earnings for the period are expected to be between 70-90 cents a share; analysts were expecting 86 cents a share.

The “Star Wars” MMO is currently in closed beta testing. No exact release date for the game has yet been given. EA is also going to push its “Battlefield 3” combat shooter hard against Activision’s
ATVI, -2.41%
“Call of Duty” —currently the leader in the category.

“With Battlefield 3, we are mounting the biggest launch campaign for a game in EA’s history,” Riccitiello said on the call Wednesday. “We think the franchise is worth it. We know the opportunity is worth it. Still, this is a big commitment of resources.”

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